RELATED PARTY ADVANCES AND LOANS PAYABLE

9 Months Ended

Mar. 31, 2012

RELATED PARTY ADVANCES AND LOANS PAYABLE

NOTE 5 RELATED PARTY ADVANCES AND LOANS PAYABLE

As of March 31, 2012 and June 30, 2011, $219,627 of trade payables was due to a Series A Convertible Preferred shareholder, ASA Commerce.

On November 23, 2009, the Board of Directors resolved to permit $250,000 of debt due to the President to be converted into shares of common stock of the Company at $0.45 per share. The Board of Directors further resolved that the remaining debt outstanding at November 23, 2009 of $1,436,415 due to the President may be converted into shares of common stock of the Company at $0.45 per share upon the Company’s common stock reaching a price of $1.50 per share. At March 31, 2012, $2,077,806 (which was at June 30, 2011, $1,942,806) was owed by the Company to the President.

At March 31, 2012, $97,500 (which was at June 30, 2011, $39,000) was due to the Chief Financial Officer in accrued compensation owing.

Amounts due to the President and Chief Financial Officer are payable on demand, non-interest bearing and unsecured. In absence of an earlier demand, amounts due are payable on June 30, 2016.

At March 31, 2012, $263,488 ($262,726 Canadian dollars (“CAD”)) (which was at June 30, 2011, $0) loan payable, including interest, is due to a director of the Company. The original loan was repayable in $350,000 CAD, unsecured, due on demand and bears interest of 10%. The Company incurred interest expense of $12,664 (which as at March 31, 2011, $0) related to the loan payable. On March 22, 2012, the Company repaid $100,720 ($100,000 CAD). Subsequent to March 31, 2012, the Company paid an additional $175,000 CAD and the Company and the director agreed that the remaining balance of $75,000 CAD plus accrued interest was due and payable on or before July 1, 2012.

The Company entered into an unsecured promissory note of $825,000 with a stockholder on May 27, 2008 with a stated interest rate of 10% and a repayment date of November 1, 2008. On October 12, 2010, the Company repaid the remaining outstanding principal balance of $150,000. On January 20, 2011, all outstanding interest payable totaling $141,953 related to the promissory note was fully paid in cash.

Dmitriy Sindalovsky has been contracted as an engineering consultant to the Company, specifically in support of the Company’s scandium applications. Under the terms of his contract, during the nine months ended March 31, 2012 the Company issued 2,150,000 (2011 – 710,000) shares valued at $237,750 (2011 - $171,225). During the three months ended March 31, 2012 the Company issued 350,000 (2011 – 250,000) shares valued at $14,000 (2011 – $72,500).  The value of these services are included in selling, general and administrative expenses in the condensed consolidated statement of operations for all periods presented.

Included in accrued expenses – related party at March 31, 2012, June 30, 2011 and 2010 are fees and unreimbursed expenses due to Dmitriy Sindalovsky of $556,861. Amounts due to the consultant are payable on demand, non-interest bearing and unsecured.  In absence of an earlier demand, amounts due are payable on June 30, 2016.

As disclosed in Note 12, in a legal claim commenced by Paritet Holdings Ltd. et al, on April 10, 2012, against two subsidiaries of the Company and other defendants, it has been alleged, among other things, that Dmitriy Sindalovsky controls ZT Holdings Limited and as a result has a controlling interest in Zeroloft Corp. AREM entered into a Trademark License and Product Distribution Agreement and Management Agreement (“Agreements”) with Zeroloft Corp. on January 14, 2010.

As a result of the Agreements, included in revenues on the condensed consolidated statement of operations for the nine months ended March 31, 2012 is the recovery of out of pocket expenses paid on behalf of Zeroloft Corp. and Zeroloft sales of $102,658 (2011 - $1,589,676).  Cost of sales includes $16,814 of expenditures related to Zeroloft activities (2011 - $508,967) and general and administrative expenses includes $85,844 of expenditures related to Zeroloft activities (2011 - $1,056,028) and amortization of intangible asset of $0 (2011 - $392,086) and impairment of intangible asset of $0 (2011 - $3,140,943). 

In addition, included in revenues on the condensed consolidated statement of operations for the three months ended March 31, 2012 is the recovery of out of pocket expenses paid on behalf of Zeroloft Corp. and Zeroloft sales of $0 (2011 - $719,078).  Cost of sales includes $0 of expenditures related to Zeroloft activities (2011 - $285,435) and general and administrative expenses includes $0 of expenditures related to Zeroloft activities (2011 - $413,496) and amortization of intangible asset of $0 (2011 - $0) and impairment of intangible asset of $0 (2011 - $3,140,943).

As a result of the legal claim described in Note 12 and for further clarification of the alleged related party transactions as at June 30, 2011 and June 30, 2010, included in revenues on the consolidated statement of operations for the year ended June 30, 2011 is the recovery of out of pocket expenses paid on behalf of Zeroloft Corp. of $1,592,616 (2010 - $554,143) and Zeroloft sales of $264,385 (2010 - $135,663). Cost of sales includes $585,047 of expenditures related to Zeroloft activities (2010 - $135,027), and general and administrative expenses includes $1,245,734 of expenditures related to Zeroloft activities (2010 - $419,116) and amortization of intangible asset of $392,085 (2010 - $355,859) and impairment of intangible asset of $3,140,944 (2010 - $0).

On May 19, 2010, the Company issued and Zeroloft Corp. agreed to accept 306,122 shares of common stock to pay $150,000 on the amount due to Zeroloft Corp. On September 1, 2010, the balance due to Zeroloft Corp. was decreased by $442,912 by offsetting accrued receivable due to the Company by Zeroloft Corp. During the six months ended December 31, 2010, the Company and Zeroloft Corp. agreed to apply $129,207 of stock-based compensation paid on behalf of Zeroloft Corp. against the amount due to Zeroloft Corp. At March 31, 2012, $277,881 (June 30, 2011 - $277, 881, June 30 - 2010 - $850,000) is due to Zeroloft Corp.